Mortgage prepayments in Canada: how extra payments can change your amortization

Why principal timing matters

Interest is calculated on the outstanding principal. Paying principal down earlier can reduce future interest and can shorten the time required to repay the mortgage.

Common prepayment options

Depending on the lender, borrowers may have options such as increasing scheduled payments, making lump-sum payments or choosing accelerated payment frequencies. Limits and definitions vary by contract.

Do not ignore liquidity

Paying down a mortgage creates home equity, but that money may be less accessible than cash in an emergency fund. A prepayment decision should consider both interest savings and liquidity.

Renewal risk

A lower balance at renewal can reduce the dollar impact of a future interest-rate increase. That can be valuable even when today's mortgage rate is not especially high.